Thursday, October 9, 2008

I have to say, I'm generally surprised that there haven't been more preannouncements in tech. I think companies must just be afraid to say anything. Their stocks are getting pounded and business has evaporated.

IBM, however, has decided to lay it out there. Revenues look about a billion below analysts forecasts of 26.3 billion. Gross margins are slightly better than expected and pretax income is a little higher as a result. They're reiterating their prior earnings guidance of $8.75 for the year.

Conspicuously absent from the release is any kind of bookings guidance for the services division -- which to me (and most analysts) is the real indication of business strength for IBM. Without bookings and backlog, you can't really tell what IBM's future business looks like. With a hundred billion or so of backlog, IBM can play with the quarterly figures pretty broadly. They can recognize previously booked business in a given quarter to show what they'd like. That's part of why it's perceived as safe.

The problem with the stock, though, is IBM relies on a significant corporate finance division to fund operations. IBM relies on the strength of other businesses to sustain growth -- and there isn't a lot of that strength stuff right now. As the economic weakness has spread beyond the United States, IBM's recently described business as usual tone has probably changed.

I had suggested buying this stock in a fit of trying to catch the bottom last week. That was a bad call. I'd sell the stock into this guidance reiteration if I still owned it.

Again, apologies for bad stop loss reporting. You should know this about me -- I turn on a dime at times. Usually it means I've gotten hurt and I want out now.

Tuesday, October 7, 2008

Today, the Fed is lunging at the commercial paper market. Almost in response to the plugging of one leak, paper problems shoot out of the next best crack – in commercial real estate, at Morgan Stanley (though they deny it on the tape), in the autos. Once again, the Fed is engaged in a very dangerous game of whack-a-mole with the markets. Even if they hit the one popping up today, there's going to be another one primed and ready to go. They cannot save everyone.

And here we get to the big problem with the bailout. It will disproportionately aid those with congressional ties. No one is going to tell you that outright but take a look at the big picture. We have multi-billion dollar companies begging for government intervention. The new mantra in banking is get too big to fail or fail. The Fed window has quickly turned into a soup kitchen line with a velvet rope. When the soup starts to run out, there's going to be less trickle-down.

Until we have free markets, our markets won't function properly. That means short selling, that means companies that mismanage their businesses disappear, it means that if the fair price of our market could be significantly lower. Like it or not, that's the way it's got to be. No one… not even the Fed… can dictate fair value. If they do, it's inherently unfair value and it will quickly become perceived as a rigged game that no one wants to play. That's what we're seeing so far, right? That's what this is all about: money hiding from the scary paper.

I fear that this is going to resolve the same way whack-a-mole does. We lose a quarter and get some useless booby prize… except in this version of the game we don't get to have any fun.